CenterPoint Energy Inc (CNP) 2007 Q2 法說會逐字稿

Good morning, and welcome to CenterPoint Energy's second quarter 2007 earnings conference call with senior management.

During the Company's prepared remarks, all participants will be in a listen-only mode.

There will be a question-and-answer session after management's remarks.

(OPERATOR INSTRUCTIONS) I'll now turn the call over to Marianne Paulsen, Director of Investor Relations.

Miss Paulsen?

Thank you very much, Lou Ann.

Good morning, everyone.

This is Marianne Paulsen, Director of Investor Relations for CenterPoint Energy.

I would like to welcome you to our second quarter 2007 earnings conference call.

Thank you for joining us today.

David McClanahan, President and CEO, and Gary Whitlock, Executive Vice President and Chief Financial Officer will discuss our second quarter 2007 results, and will also provide highlights on other key activities.

In addition to Mr.

McClanahan and Mr.

Whitlock, we have other members of management with us who may assist in answering questions following prepared remarks.

Our earnings press release and Form 10-Q filed earlier today are posted on our website, which is www.centerpoint energy.com under the investor section.

I would like to remind you that any projections or forward-looking statements made during this call are subject to the cautionary statements on forward-looking information in the Company's filings with the SEC.

Before Mr.

McClanahan begins, I would like to mention that a replay of this call will be available until 6:00 p.m.

Central time, through Thursday, August 9th, 2007.

To access the replay, please call 1-800-642-1687 or 706-645-9291, and enter the conference ID number 5451522.

You can also listen to an online replay of the call through the website that I just mentioned.

We will archive the call on CenterPoint Energy's website for at least one year.

And with that, I will now turn the call over to David McClanahan.

Thank you, Marianne.

Good morning, ladies and gentlemen.

Thank you for joining us today, and thank you for your interest in CenterPoint Energy.

As you know, we're the largest gas distributor in Minnesota, and serve the city of Minneapolis, so the tragic bridge collapse yesterday in Minneapolis hit very close to home.

Like you, our thoughts and prayers go out to all of those that were affected by this tragedy.

We are fortunate that we had no employees injured, nor were any of our facilities affected, although we we had some major mains in the area.

I want to acknowledge the very quick response of our employees, to make sure that there was no danger to the public, to develop very quickly a contingency plan if we had to shut down some mains, the additional leak surveys undertaken to ensure safety of the public, and to support the local emergency management.

I couldn't be more proud of the work our employees did there.

This morning, we reported our second quarter earnings, and I'm pleased with our overall performance.

Our results demonstrate the value of our balanced electric and gas portfolio.

Net income was $70 million for the second quarter of 2007 or $0.20 per diluted share.

This compares to net income of $194 million or $0.61 per diluted share for the same period last year.

When comparing our quarterly earnings to last year, let me remind you that results for the second quarter of 2006 were favorably impacted by $140 million or $0.44 per diluted share, related to the resolution of legacy tax issues.

In addition, last year's earnings were negatively impacted by $21 million or $0.07 per diluted share, related to the resolution of the 2001 Texas PUC order that established the initial electric delivery rates under deregulation.

Excluding the impact of these items, earnings last year would have been $75 million or $0.24 per diluted share.

Operating income was $242 million for the second quarter of 2007 compared to $220 million for the same quarter of 2006.

The increase in operating income for the quarter was driven by strong performances in our interstate Pipelines and Field Services businesses, and continued improvement in our natural gas distribution utility.

These positive results were partially offset by the impact of mild weather on our electric utility, and the effect of our electric rate settlement that was implemented in October of last year.

Now, I would like to review our 2007 results by segment, and update you on a number of significant items.

Houston Electric reported operating income of $128 million for the second quarter of 2007 compared to $119 million last year.

Excluding income from the CTC of $10 million this year and $15 million last year, our core regulated electric utility earned $118 million compared to $104 million for the same period of 2006.

This year's results had the benefit of a $17 million favorable settlement related to a legacy fuel reconciliation issue that dates back to the time prior to deregulation.

On the other hand, last year's results were negatively impacted by $32 million related to the resolution of the 2001 rate case I noted earlier.

In addition, this year's results were adversely impacted by $19 million from lower customer usage, primarily due to milder weather, a $12 million reduction resulting from the rate case settlement implemented last October, and $10 million in higher transmission costs.

Houston Electric continued to enjoy the benefits of strong customer growth in our electric service territory, adding more than 43,000 customers since last June.

Other than the impact of milder weather, Houston Electric's financial results were as expected, and it continues its solid operational performance.

Our Natural Gas Distribution segment reported operating income of $8 million for the quarter, compared to a loss of $2 million for the same period last year.

This business typically has minimal earnings in the second and third quarters due to its seasonal nature.

As I have previously shared with you, we made a number of changes in 2006 to improve the financial and operational performance of our gas LDCs, including a reorganization of the business in order to reduce structural costs and eliminate redundant functions.

This quarter, we continued to experience positive results from these changes through lower labor and benefit expenses.

In addition, our Natural Gas Distribution business continued to benefit from solid customer growth, adding nearly 60,000 customers since June of last year.

In January of this year, we filed a rate case in Arkansas, requesting additional annual base revenues of $51 million.

We have since agreed on adjustments, which would reduce our request to approximately $40 million.

As part of this filing, we proposed a decoupling mechanism that would help to stabilize revenues and would also be consistent with the Arkansas Commission's initiative to promote energy efficiency.

Last month, the Commission staff filed its direct testimony, proposing an increase of approximately $13 million, and also advocating the implementation of a rate stabilization mechanism.

While we're gratified the staff has embraced the rate stabilization mechanism, we do not believe the recommended amount is sufficient, and we will file additional testimony later this month.

The hearing is scheduled for October and we expect a decision from the Commission in November.

Our competitive Natural Gas Sales and Services segment recorded an operating loss of $4 million compared to an -- to operating income of $7 million for the second quarter of 2006.

The decline is primarily related to a reduction in locational and seasonal natural gas price differentials, which impact the opportunity to create value from optimizing our pipeline and storage assets.

In addition, we recorded a $6 million loss for mark-to-market accounting for derivatives used to lock in margins, compared to an $8 million mark-to-market gain last year.

We also recorded a $5 million write-down of natural gas inventory to lower of cost to market in the second quarter of this year, compared to a $17 million inventory write-down last year.

Since we have had sales for future periods when we expect this inventory to be delivered, we should realize an increase in operating income at that time.

Although market conditions were not as favorable as last year, this unit continues to perform well.

Year-to-date, we've recorded operating income of $52 million compared to $32 million last year.

Our Interstate Pipelines segment recorded solid results this quarter, reporting $52 million of operating income compared to $40 million in 2006.

The main contributor to this increase was the completion of the first phase of our new 172-mile pipeline between Carthage, Texas and our Perryville Hub in northeast Louisiana, which was placed in commercial service on May 1st.

This first phase has about 1 Bcf per day of capacity.

In addition, we placed a second phase of this project in service yesterday, bringing the capacity to approximately 1.25 billion cubic feet per day.

Ultimately, we plan to expand this project to a total of 1.5 billion cubic feet per day by adding additional compression, which was approved by the FERC in May, and increasing the maximum allowed operating pressure, which the Department of Transportation has already approved.

We expect the third phase to be in service in the first quarter of 2008.

This remains an excellent project in a capacity constrained area, and is expected to provide attractive returns.

Once the three phases are complete, we expect that this project should add between $85 million and $95 million of operating income per year.

A second major project, the Southeast Supply Header, or SESH, a joint venture with Spectra, is progressing well.

A solid group of shippers has subscribed to approximately 95% of the 1Bcf per day capacity.

Earlier this summer, the FERC staff issued a favorable draft statement indicating that there were no significant environmental impacts along the proposed route.

We expect FERC authorization later this year, and anticipate that the new pipeline will be into service in the middle of next year.

We executed contracts with Southwestern Electric Power Company, or SWEPCO, a subsidiary of AEP, to construct pipeline and compression facilities to serve a new power plant with up to 480 megawatts of capacity.

These facilities are required to meet the growing demand for energy in this area.

The facilities will be built in two phases, with the first phase to be in service in the third quarter of this year, and the second phase expected to be in service in the second quarter of 2009 following FERC approval.

Natural gas production areas near our existing pipelines remain very active, and additional pipeline capacity will be needed to get these reserves to market.

We're very active in pursuing other projects.

Our Field Services segment also reported solid results, with operating income of $27 million compared to $21 million in 2006.

The core business continues to benefit from strong drilling activity in the midcontinent area, and higher demand for ancillary services.

We're pleased with the financial results of this segment, and we expect to continue to grow earnings through on-system expansions and by using our skill sets and good customer relationships to capture off-system growth opportunities.

Now, let me provide you an update on some other important initiatives.

Houston Electric continues to actively pursue a distribution grid automation strategy, which involves the implementation of an intelligent grid using broadband over power line technology and multifunctional smart meters.

As part of our technology assessment, we've installed approximately 10,000 smart meters to evaluate any issues relating to systemwide implementation.

Results so far have been encouraging, and we will continue to take a very disciplined approach to ensure that technology can be scaled up efficiently to serve our entire system.

An advanced metering rule pertaining to technical requirements for installing these types of systems and a valuation model for an advanced metering surcharge have been improved by -- approved by the Texas Public Utility Commission.

We expect to file a deployment plan and a request for a surcharge before the end of the year.

Any decision to move forward with a comprehensive systemwide implementation will be contingent upon successful results in the limited deployment program, and an appropriate PUC order allowing us to recover our investment, including a reasonable return on a timely basis.

Houston Electric continues to invest in new electric transmission infrastructure.

I'm pleased to announce that on Tuesday of this week, we energized our [Hillgy] Project, a new 68 mile transmission line that will reduce congestion in the Houston area.

The Hillgy Project went from conception to completion in less than three years.

This is a real testament, not only to the skill and dedication of our employees, but also to the commitment of ERCOT and the PUC to respond promptly to the growing needs of the electric market.

Let me also provide a brief update on our true-up appeal.

As you recall, we've appealed decisions by the Texas PUC that in the aggregate totaled $1.3 billion.

Interveners have also appealed various aspects of the PUC's final order.

Our true-up appeal remains at the Third Court of Appeals where oral arguments were held in January.

There is no statutory time frame under which the court has to render a decision on the appeal, but a decision could come at any time.

Of course, regardless of the outcome, we expect parties to appeal the decision to the Texas Supreme Court.

In closing, I would like to remind you of the $0.17 per share quarterly dividend declared by our Board of Directors on July 26th.

I believe our dividend actions continue to demonstrate a strong commitment to our shareholders, and the confidence the Board of Directors has in our ability to deliver sustainable earnings and cash flow.

Now, I'll turn the call over to Gary.

Thank you, David, and good morning to everyone.

I would like to discuss a few items with you this morning.

In June, we amended our three bank credit facilities, which now total $2.45 billion, and extended their maturities to 2012.

We increased the revolver at CenterPoint Energy Resources to $950 million from $550 million.

In addition, we lowered the first drawn costs of the parent Company's $1.2 billion revolver by 5 basis points.

Over the last four years, we have steadily and significantly strengthened our liquidity and enhanced our financial flexibility through the improvement in size, price, and tenor of our working capital facility.

The second matter I would like to discuss concerns the bill that was passed in the Texas Legislature in May and signed into law in June.

This legislation will permit us to securitize the balance of our true-up costs that we are currently recovering through a competition transition charge, or CTC.

We estimate that the balance to be securitized would be a little more than $500 million.

We filed a request for a financing order in June, and have reached substantial agreement with the parties in this case.

The Texas PUC is expected to consider the agreement during its next scheduled open meeting on August 16th.

Once the PUC approves the financing order, we anticipate issuing the transition bonds this fall, and will use the proceeds to pay down debt.

As we previously stated, we believe securitizing the CTC balance results in a win/win, and that customers save money while we accelerate the collection of the remainder of our true-up balance.

In addition, if we are successful in our true-up appeals, we plan to request an additional financing order and securitize any amount ultimately allowed by the courts.

Now, let me discuss our financial strategy as we continue to focus on improving and growing the profitability of our businesses.

We increased our dividend in each of the past two years, while funding a significant number of excellent growth opportunities, as well as our ongoing capital requirements.

We accomplished this largely through internally generated cash flow and true-up proceeds, with a minimal increase in debt.

Future growth opportunities will be funded through internally generated cash flow, any additional true-up proceeds and the optimum mix of debt and equity.

We remain committed to take the steps necessary to maintain and enhance the credit metrics and credit ratings of both the parent Company and our utility subsidiaries.

Finally, I would like to discuss our earnings guidance.

This morning, in our earnings release, we announced that we continue to expect our 2007 earnings to be in the range of $1.02 to $1.12 per diluted share.

In making our earnings estimate for the year, we have assumed normal weather for the balance of the year, and we have made certain economic and operational assumptions, including the timing and outcome of various regulatory and legal proceedings.

As David mentioned, we're pleased with our second quarter results and we will, of course, continue to update our guidance as the year unfolds.

Now, let me thank you for your interest in the Company, and I'll turn the call back to Marianne.

Well, thank you very much, Gary.

With that, we would now like to take your questions.

In the interest of time, I would ask you to please limit yourselves to one question and a follow-up.

Lou Ann, would you please give the instructions on how to ask a question?

(OPERATOR INSTRUCTIONS) [Charlie Finner], Morgan Stanley.

This is Rudy Tolentino.

I just had a couple of questions.

How much income do you expect from the completion of the SWEPCO lateral, that you talked about earlier?

We really hadn't provided an estimate of that.

That's a -- at the end of the day, it will be an investment of north of $50 million, and we obviously continue to try to earn a return consistent with a normal pipeline return, which is on a 50/50 capital structure, a good solid ROE.

But we haven't really provided any guidance on that particular piece.

Okay.

And you talked earlier about the business reorganization savings at the LDC level.

How much annual savings do you expect from that program?

I think it is between $6 million and $10 million.

Okay.

And then -- .

That's just from the direct benefits and labor savings.

We think there is also some indirect savings just because we're going to be more efficient and be able to accomplish things in a better manner, and that's just not quite -- we don't have that quantified.

Okay.

And then lastly, about -- any considerations about dropping down any of your assets into an MLP-type structure?

We continue to look at that.

We've had this discussion in the past.

We, up to now, have felt that we weren't at a disadvantage by not having an MLP.

We also have said that because of the cost of capital advantages of an MLP, that if we needed to do one, we would.

And we've studied it.

We know how to go about doing it.

And it is just a matter of when we need to do it.

We kind of hate to give up all of the growth we've had in these businesses the last few years.

But if that's what it needs to take to continue to grow our business, we'll certainly consider it.

But up to this point in time, we have not needed to do it.

But that doesn't mean it won't be in the future.

Okay.

But you have no immediate plans to do it now?

Yes, we're not going to announce one today.

Okay.

Thank you very much.

David Grumhaus, Copia Capital.

Couple of questions for you.

I know on the court case, you don't get any timing on it.

I guess are you hearing anything?

Are they going to go on summer recess at any point so that it is going to be awhile?

Or could it show up tomorrow?

I'll ask Scott Rozzell, our General Counsel, to address that, David.

Well, I think David, the answer to that is it could show up tomorrow.

There is not an official recess in the summer that is taken by the third court.

But I think it is fair to say that the output slows during the summer because of the justice's vacation -- individual vacation schedules, and because of the fact that they change over their clerks during the summer.

But I think you could see a decision out of that court really at any time.

Is this unusually long?

No, I wouldn't say so.

I would say that usually what we tell people is that a good estimate for each of the stages of the appeal is about a year from the time it gets to a court until the time it comes out, and we're at about 18 months for this particular segment.

But we have two appeals before that court right now, and the other one is actually a little older even than this one.

So, I would say that it is a little longer than normal.

But certainly not outside the range of what we have experienced over the years at the court of appeals level.

Okay.

One other question, Gary.

The tax rate seemed a little lower than where you had sort of pointed us to in the quarter.

Is it likely to stay there, or are we likely to move back up more towards the low to mid 30s?

Yes, it was 29% this quarter.

Year-to-date, it is 33%.

For the year, look at 34% to 35%.

Really just timing issues, David.

Great.

Thanks a lot, guys.

Paul Ridzon, KeyBanc.

If you were to go with the full deployment of smart meters in Houston, how how big an investment opportunity would that be?

It is about -- including the BPL part, that's the back haul, and the sensors we're going to put on the grid itself, which isn't the meter part of it, it is how we manage the grid, it is about $500 million or $600 million.

And then we have another $100 million or so of investments that we could make in the LDCs, if we go ahead and deploy the same technology at the LDC level, and just have them piggyback on this.

(inaudible)

But on the electric side, it is between $500 million and $600 million.

Have you selected a vendor for that project?

Well, the meter, the smart meter is Itron, and the BPL we're using kind of off-the-shelf technology, but it's -- we do have vendors, yes.

Thank you.

Carl Kirst, Credit Suisse.

Most of my questions were answered.

But if I could just ask quickly on the weather, I apologize if you said this in the first few minutes.

Did you break out what the actual financial impact was from the milder weather here in Houston for the second quarter.

And also just given -- looking out the window, given the weather we've had here in July as you've kind of reaffirmed the $1.02 to $1.12 range, what does that sort of include as far as third quarter weather assumptions?

First, weather -- we've had about a $19 million impact from lower consumption.

At least two-thirds of that comes from weather.

So, $11 million or $12 million, something like that.

That's our estimate.

But all of this is modeled so it can't be that precise.

But that's our best guess.

In terms of July, you're right.

We've only had one week of what I consider normal weather in July.

We have assumed normal weather moving out for the third and fourth quarter, so we haven't taken that into account.

But we're not ready to back off our guidance.

Fair enough.

I appreciate the clarification.

Thanks, guys.

Faisel Khan, Citigroup.

On the -- cut me off if you already answered this question, because I jumped on late.

But with the Arkansas rate case, there was a wide disparity between what, I guess the AG and what the staff were putting up in terms of potential rate increase.

What's the wide differential a result of?

Well, what we've done is we filed for $50 million or so.

We've reduced that by $9 million, just for some tax issues.

So, you reconcile between the $13 million recommended by the staff and the $40 million.

About half of that is O&M expenses, and it is not one thing, it is a whole bunch of little things.

Okay.

And about half of it, or a little less than half of it is really rate-based and a lower return, and then the revenue-related impacts when you make those type of adjustments.

So, there is a whole bunch of little items.

There's not one big item to be very honest.

Okay.

And we were, to be very honest, we were disappointed in this.

We're not giving up.

We're still working hard to try to improve on that.

And hopefully we can.

Did you discuss the lower throughput on the pipeline at the field services unit?

Sorry, higher throughput.

It is higher.

I'm looking at it backwards.

Thank you.

I was about to say I don't think we have an explanation because I didn't think it was lower.

Fair enough.

My mistake.

On these new announced wind project zones, or transmission zones in ERCOT, how does that affect you guys from your transmission planning point of view?

Well, we have indicated and filed our desire to be involved in that -- those particular zones.

The Commission has a long proceeding where they're defining the zones and they're going to go through a number of three or four steps.

I don't think they actually award it until sometime, it is almost two years out, if I'm not mistaken.

But we would be very interested in being involved in those CREZ zones so to speak, even though they're really not -- any of them are in our service territory.

Any time, though, you add any lines, you change anything in the grid, it affects everybody.

Right.

So, we have to know kind of where these new lines are, and what the load is, and what the generation is, and we remodel our system constantly.

And my guess is that they're not going to have huge impacts in the Houston area, because most of this wind is out in West Texas and pretty far from us.

Okay.

So I don't think we're going to see a lot of impacts, are we, Tom?

No.

The expert says no, we shouldn't see much.

Okay.

Great.

Thanks for the time.

Steve Gambuzza, Longbow Capital.

I was wondering if you could comment on the potential for deployment of the advanced meters on the LDC side?

I think you mentioned that could be about $500 million.

Could you talk more about the process for pursuing that?

Are you going to wait and see how it goes in Houston Electric, and would you envision using the same technology suite?

Actually, what happens is that you just replace part of the meter on the gas side, and the electric meter actually polls the gas meter and reads it for you.

So you piggyback the gas side on top of the electric deployment.

I think that it is not $500 million.

Really, it is less than $100 million.

Itron has also developed an electronic meter for the gas side that we're also testing.

We have a lot fewer of those meters out in the field, but we're testing the technology to make sure that we believe that it works.

The one thing that the technology on the electric side does, is we can do automatic cut-ins and cut-outs, without sending a man or service tech out to a home.

On the gas side, that's not quite perfected yet, and you might be able to do automatic cut-offs.

Now, you'll never be able to do automatic cut-ons, because you have to have a tech go in the house and turn on pilot lights and stuff like that.

But, it is a breaking development there.

Technology looks pretty good.

But it is about -- it is less than $100 million investment.

And that's just in the Houston area, because it would piggyback on Houston Electric's deployment.

Okay.

So, $100 million incremental on top of what would be a $400 million to $500 million electric deployment?

Yes, $500 million to $600 million electric, and $100 million on top of that.

Okay.

And then I guess is it -- do you currently have any plans, or have you thought about potentially doing a broader deployment in other -- where you operate gas LDCs?

Or because you don't have an electric operation there, it doesn't really make sense for you?

Yes, that's exactly right.

I think that you really have to have -- we're in a unique position of being a combination gas and electric utility here in Houston.

We don't have that benefit in other states.

But I do expect over time, that other utilities are going to do identically what we're doing on the electric side.

And so I think there will be some opportunities down the line.

Okay.

Thanks very much.

Lasan Johong, RBC Capital Markets.

I joined the call a little bit late.

I apologize for that.

But I've got a couple of questions.

One on the smart meter.

Is this something that you consider extending to maybe [Mini] Gasco, your biggest LDC?

Or is this something that is just going to be restricted to Houston?

In other words, are there other opportunities?

And second, do you think there are opportunities from the TXU transaction that could emerge to the benefit of CenterPoint?

On the first one, really, what we're doing there is really a Houston -- it is a Houston opportunity, Lasan.

Not -- because the gas meter really piggybacks on the electric meter, you have to have these electric meters deployed.

So, now sometime in the future, it will spread.

But right now, we're looking at it only in Houston.

It is hard for me to comment on the TXU transaction.

Not real sure what's going to happen once that thing is complete, assuming it is complete.

So, I think we'll just have to wait on that one.

Okay.

And the current situation in the credit market not looking too bright for the moment.

I don't see any negative impact on CenterPoint.

Would that be the correct assessment?

I think very little.

Gary, I think you've got one maturing debt at [CIRC] next year.

Next year, Lasan, we have two maturities.

One at CIRC, and then one later in the summer, $200 million at the holding Company.

And as you know, that's one of the things we've worked diligently on is ensuring that we have the financial flexibility through our liquidity facilities to make sure working capital facilities.

So, I fully expect the capital markets to be open for -- at those times, and hopefully we'll be strong at that point in time.

But we're fully covered if there is any issue.

Good.

Great.

I expected that.

Thank you very much.

(OPERATOR INSTRUCTIONS) [Chris McGee], [Diamondback].

That question has been withdrawn.

[Steven Wang], Black River Asset Management.

A quick question here on the Hillgy transmission line.

Can you remind us, was that included in the settlement?

Or will you be able to file for a true-up of that after '08?

We're going to be able to file for it in September of '08.

It was not completed at the time of the settlement.

How much was not included in it?

Can you remind us?

I think both the transmission line and the substation that went along with it, was about $112 million, $115 million.

Okay.

And typically, this past year was the first time you guys had the dividend bumped up in a while.

Can you remind us when the Board typically does a policy review?

Is it Q1?

It is.

Now, we increased our dividend in January of '06, and then again in January of '07.

The Board typically looks at that in the first quarter of the year.

Okay.

And on SESH, what is the maximum expansion capability there, from one B today?

If you get approval and you wanted to, what was the B maximum?

Could it go up to 1.5, 1.7?

Well, we have our joint venture partner, Spectra, and there's one other partner in that venture, and it is [Sonat].

And Sonat has the right to expand -- take some expansion rights up to 1.5 Bcf from -- so that's at 500 million a day.

I think there are some additional expansion capabilities of up to a couple of hundred million a day through additional compression.

So, it probably -- 200 million would be the higher (inaudible).

The other capacity is probably going to be used by Sonat.

Okay.

So, how should we think of that?

The first 500 is shared with Sonat, the remaining 500 is all yours?

No, think of it this way.

We've got a billion, Spectra and CenterPoint.

Then Sonat has up to 500.

And then we have 200, Spectra and CenterPoint, has an additional 200.

And that's assuming that Sonat takes that full amount, which I think that's the expectation.

Okay.

And the last question I have was can you give us an update on Entergy Texas integration into ERCOT, and what your thoughts are on that, and where you think it is going?

Well, I don't know that we have any insight into that, any more than anybody else.

Obviously, it is a topic at the PUC.

They're looking at it.

I think if it happens, it is a long ways down the road, because it is a fairly expensive undertaking, and it would take a fair amount of time.

That's for sure.

But I think that this all kind of surfaced initially back when Katrina, Rita hit, and there's clearly interest in it.

But I don't know -- I just don't know where that's going to end up.

Is there any positive or negative benefit to you in any way in that regard?

Well, they're clearly -- if they are integrated, they're going to have to build -- or somebody's going to have to build a fair amount of transmission, which will change some of the flows in Texas, which probably doesn't necessarily hurt us.

But there could be some -- there actually could be some opportunities there probably to build some transmission.

Okay.

Great.

Thank you.

Lou Ann, are there any other questions?

We have no further questions at this time.

Okay.

Thank you very much, everyone, for participating in our call today.

We appreciate your interest and support, as always.

Have a great afternoon.

Thank you.

This concludes CenterPoint Energy's second quarter 2007 earnings conference call.

Thank you for your participation.

You may now disconnect.